Itzhak Tshuva’s Delek Group is negotiating the sale of its controlling interest in the Israeli insurance company, Phoenix Holdings, to Jared Kushner’s investment vehicle Kushner Funding Llc. Earlier today Delek announced that on July 4th it signed a, non-binding, memorandum of understanding with Kushner Funding LLC. the memorandum of understanding contains details of an understanding to negotiate a binding agreement under which Delek will sell its approximately 47% controlling interest in Phoenix Holdings to New York based Kushner.
Tel Aviv based Phoenix Holdings is listed on the Tel Aviv Stock Exchange. With 249.7 million shares outstanding Phoenix Holdings had a market capitalization just prior to the announcement of about US$900 million (NIS3.1 billion) – employing for the calculation Israel’s current comparatively strong shekel exchange rate of 3.42. With its 47% of position the market value of the Delek holding therefore came to about US$426 million (NIS1.5 billion).
This morning, after the news was released the total Phoenix Holdings market capitalization drifted up, but only very slightly, to just over US$935 million (NIS3.2 billion).
The apparent market indifference to the announcement is largely because the price to be paid by Kushner Funding to Delek is not actually directly related to the share price. It is instead a formula price, based on Phoenix’s shareholders’ book equity as at the end of 2013, plus an interest component to be added accruing from 1st January 2014 until the day of completion of the transaction. At the end of 2013 Phoenix’s shareholders equity book value was (again using today’s exchange rates) about US$1.04 billion (NIS 3.56 billion).
Assuming, for purposes of calculating an interest rate period, that the deal should close on or around September 30th then interest payable at, say, 3% would still be only about US$23 million (NIS80 million), for a total estimated purchase valuation of about US$1.06 billion (NIS3.64 billion) on a 100% basis. Delek’s current 47% holding would then be worth some US$500 million (NIS1.71 billion).
Delek also clearly states that the memorandum of understanding still includes a number of outstanding fundamental conditions which need to be satisfied, as conditions precedent for a binding agreement to come into force. As sellers Delek indicates it may also provide some form of vendor take-back as well, to help Kushner fund the purchase price, either directly by way of loan or as guarantee. The terms of any such vendor take back or corporate guarantee have not yet been disclosed
Currently the only element of the memorandum of understanding that is actually legally binding is the provision of a period of exclusive negotiations between the parties and, of course, an obligation upon Kushner as potential acquirer of Phoenix Holdings to maintain confidentiality of corporate materials it may receive from Phoenix Holdings and/or Delek itself for such purpose.
The transaction remains therefore dependent on due diligence, for a successful completion of the negotiations between the parties and for the eventual execution of a binding agreement. Such binding agreement will provide for receipt of all of the necessary approvals by Israeli regulators as well, as may be required under Israeli corporate law.
As a major New York real estate developer in his own right these days, and as manager of and heir to his father Charles Kushner’s family real estate business, Kushner Properties, Jared Kushner is showing an increased willingness to diversify sensibly outside of real estate, with investments including forays into the media business and venture capital with his younger brother Joshua. As the husband of Ivanka Trump and father of their two children, daughter Arabella and son Joseph, Jared juggles family and business life much the same as any other young couple, though perhaps with a little extra help.